Insights

Weekly Market Commentary December 10, 2018

The market is starting to grate on some investors. The S&P 500 dropped 4.6% last week on concerns the reported trade truce wasn’t as substantial as hoped and that global economic growth continued to slow. Global stocks participated in the decline as the MSCI ACWI lost 3.5% last week. Concerns over economic growth have helped bonds recently, and the Bloomberg BarCap Aggregate Bond Index rose 0.9%. The tendency to stay in a tight range and revert to lows has made this market extra agonizing. (See accompanying chart.)

Source: FactSet

Key Points for the Week

U.S. stocks slid 4.6% last week on growth and trade concerns.

Markets have traded in a narrow range since mid-October.

The Treasury yield curve inverted, which is a further sign investors are worried about the economy slowing.

Economic and trade news continued to pressure markets.

Two sets of factors have helped create the tight trading range. On the high side, the news on trade is never substantial enough to move markets back toward the September highs, and weak economic news reinforces concerns about growth. Markets were further pressured last week by the inversion of a small part of the yield curve, which raised further concerns about economic growth. (See below.) On the low side, valuations, announcements on interest rates or trade, and strong U.S. labor markets have been enough to coax investors to support stocks as they approach a 10% decline.

We expect volatility to continue and would not be surprised to see the markets swing lower this week. China’s trade growth was released over the weekend, and imports and exports both fell far short of expectations. The low numbers provide further evidence of weakening economic growth. However, there are also opportunities for the market to increase. Positive news on trade, announced by both the U.S. and China, could push stocks significantly higher.

The last couple months have been a tougher-than-normal period to be an investor. Investing is about getting rewarded to take on risks others don’t want to bear. For bearing this risk, stock investors have earned a substantial premium to those who keep their portfolios very conservative. This quarter feels like one of those periods in which investors must ride through a rough patch to reap the long-term rewards.

What is an inverted yield curve, and what does it mean?

Source: FactSet

An inverted yield curve occurs when a Treasury bond’s interest rate drops below a shorter-maturity bond’s rate. Normally, longer maturities have to offer a higher yield to compensate for the longer commitment of funds. As the accompanying chart shows, the interest rate on five-year Treasury notes is lower than the interest rate on three-year Treasury notes. Inverted yield curves are often associated with slowing economic growth, including recessions. Because of this past relationship, inverted yield curves receive frequent mention in many negative articles and reports.

To keep a balanced view on today’s yield curve:

Remember, past inversions have typically been more pronounced, i.e., most of the short maturities yield more than the intermediate and long maturities. Last week’s inversion was very slight and occurred only in the middle of the curve.

The yield curve is a symptom of concerns about economic growth. It doesn’t cause a recession, but it expresses concerns the Federal Reserve has raised rates too high and will have to cut them in the future.

The bond market isn’t always right. Continued evidence of economic growth, like we have seen in the U.S. jobs reports this year, could move markets in the other direction.

Fun Story

Morton Jablin and his wife spent more time on cruise ships than they did on land. But since his wife passed away, Jablin moved aboard the Seven Seas Navigator cruise ship full-time. That was 13 years ago. The 94-year-old former Navy officer, known by the crew as “Captain,” says there’s no better place to be. The crew and staff tend to his every need, and he spends his days cruising on the ocean and seeing the world. “Life on board couldn’t be better,” he says.

This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 INDEX

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Cadwell Wealth

Follow Us

Headquarters

Subscribe to our commentary & blog:

First Name*

Last Name*

Email*

Phone Number*

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Securities offered through Cetera Advisor Networks LLC (doing insurance business in CA as CFGAN Insurance Agency), Member FINRA/SIPC. Investment advisory services offered through CWM, LLC, an SEC Registered Investment Advisor. Cetera Advisor Networks LLC is under separate ownership from any other named entity. Carson Group Partners, a division of CWM, LLC, is a nationwide partnership of advisors.

This site is published for residents of the United States only. Registered Representatives of Cetera Advisor Networks LLC may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Not all of the products and services referenced on this site may be available in every state and through every advisor listed. For additional information please contact the advisor(s) listed on the site, visit the Cetera Advisor Networks LLC site at www.ceteraadvisornetworks.com.

2019 Cadwell Wealth. All rights reserved. This content cannot be copied without express written consent of CWM, LLC. Wealth Designed. Life Defined. is a registered trademark of CWM, LLC and may not be duplicated.

Cookies

We use cookies to improve your experience and analyze user behavior. By continuing to use this site, you consent to our use of cookies.

Accept

Cookie Box Settings

Cookie Box Settings

Select which cookies you will allow this site to use:

Block all

Functionality

Analytics

Advertising

Essential cookies help make a website usable by enabling basic functions like page navigation and access to secure areas of the website. The website cannot function properly without these cookies.

Functionality cookies enable a website to remember information that changes the way the website behaves or looks, like your preferred language or the region that you are in.

Analytics cookies help website owners to understand how visitors interact with websites by collecting and reporting information anonymously.

Advertising. cookies are used to track visitors across websites. The intention is to display ads that are relevant and engaging for the individual user and thereby more valuable for publishers and third party advertisers.